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London's first community finance company, Change, is about to start providing a range of financial services to people and businesses in five boroughs. It was set up by London & Quadrant Housing Trust and will focus on customers who are otherwise financially excluded – people who have been unable to access the services of mainstream financial institutions.

For individuals, Change will offer free information and advice, current accounts, savings accounts, savings incentives, insurance and loans. For businesses and social enterprises, Change will provide free support and advice, and start-up and growth finance, but only for those aiming to provide much-needed services in under-invested communities.

Why the need for Change?
Central and local government, housing associations and other social businesses have been investing in communities for decades, but to create thriving, sustainable communities we must break the culture of grant dependence and encourage a move towards independence. This can only happen if communities and individuals have access to a choice of financial services and the information and support they need to make the right choices.

Nationally, it is estimated that between 3 and 6 million people have no bank account, and that 1.5 million people don't use any financial services at all. Eight out of 10 of these financially excluded people live in some form of social housing.

Recent research in London demonstrates that social housing residents are suffering from financial exclusion – more than half have no cheque book or guarantee card, 40% are borrowing from expensive, unregulated sources, and 20% are borrowing to fund day-to-day living expenses.

The same research showed a high demand for community financial services. At least half of London's social housing residents want to save regular, small amounts. Half want to borrow money at reasonable rates; a quarter want help setting up a business and four out of 10 want general advice on money matters.

Existing community finance providers are unable to meet this demand. If housing associations are serious about tackling social exclusion, they must tackle the financial exclusion of residents and businesses in their communities.

Community finance company models
A range of options has been tried in the UK, outside London. These pilots have all been led by Community Finance Solutions at the University of Salford.

Between 3 and 6 million British people have no bank account and 1.5 million don’t use any financial services at all, so the demand is there

The essential ingredients for a successful community finance project are: the support and involvement of the local community; a range of services tailored to the needs of local people; the support of private and public sector partners with the right blend of skills – and, last but by no means least, some money.

Developing the company
The starting point for Change was a feasibility study. This focused on the extent to which social housing residents are facing financial exclusion, the demand for community financial services and the ability of existing providers to meet that demand.

Having demonstrated that there was a need for some form of intervention and investment, Change has now embarked on a 12-month development phase. During this time the company will test a range of financial and support services for business and personal customers, develop further products and services in consultation with excluded communities, develop partnerships with public and private sector partners, and produce a viable business plan.

Like any other business plan, the starting point is the vision – demonstration that there is a need for the products and services you intend to provide – and proof that you have the strategies and plans in place. Also, skills and cash are needed for the development period and early years.

On the financial side it is essential that the commercial and social elements of the business plan are separated as far as possible, as these are likely to have different risks and be funded by different partners. Partners should include:

• mainstream banks (Change's partners are Barclays and Lloyds TSB) to provide funding, technical know-how and a wider choice and range of services
  
• credit unions and other community finance providers to give a local, responsive service via trusted partners
  
• the Housing Corporation, for start-up finance and to help share best practice
  
• your local development agency, to provide funding and strategic guidance
  
• local authorities, to ensure that your ideas are in line with theirs
  
• other housing associations, so your costs can be shared and a greater number of social housing residents can access services.

How much does it cost?
During the feasibility phase some research will need to be funded, and your proposal will need to be launched. When you reach the development phase, you will need a project manager, and your services and business plan will need to be developed.